Balancing the books
As the coldest January for years starts to bite and the credit crunch is still in full swing, the financial forecast is pretty frosty for ordinary consumers. But a New Year can mean a new chance to take control and manage your money to your benefit, and taking advantage of credit card balance transfers could be one way to warm up your finances.
Tempting 0% offers on credit cards have been noticeable by their absence this year as credit card companies tighten their belts in anticipation of another lean year. But they are out there, with some banks even joining in the frenzy to tempt wary high street customers into their branches with 'Sales' on financial services, including balance transfer credit cards. The smart consumer can take advantage of this desire to please by the credit card companies and snap up a bargain on balance transfers. Many credit card companies are now reducing their exposure in the marketplace by only accepting customers with very good credit histories. Any small blip on your record could stop your chances of taking advantage of the few 0% offers that are available, so a worthy New Years resolution might be to check your credit history records. If there are any discrepancies on your record (even something as insignificant as an incorrect postcode) they could affect your ability to gain credit. By checking that all your details are correct and up to date, you have a far better chance of taking advantage of the offers that are available.
If your credit history is all in order, there are still a few things to think about before choosing a balance transfer card. Firstly, a transfer fee is usually required to move an outstanding credit card balance onto a new card. This fee is normally around 3% of the total transferred, but some cards do have a minimum fee no matter how small the transferred amount. You will need to include this amount in your calculations of exactly how much transferring to another card will cost.
Not all 0% balance transfer credit cards offer interest free terms on purchases as well. This is where the golden rule of credit card balance transfers comes into force " never use the card for purchases as well. Keep it exclusively for balance transfers. The amount you pay each month will go to pay off the most recent transactions first, rather than your initial balance transfer. This means that you could end up running out of time on the 0% offer, with your monthly payments going to clear off recent purchases when they could be shrinking the size of your balance transfer instead. This could undermine the whole point of taking out a balance transfer card in the first place, as you may start paying interest before the debt is cleared.
Some cards offer a tempting combination of 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. In a direct reversal of the above scenario, with these cards once the 0% on purchases has run its course your payments go to the amount attracting the lowest interest rate first, namely your balance transfer. This is known as 'negative payment hierarchy' and results in the customer paying the full interest amount on purchases (usually a minimum of 18% on most cards) and costing more in the long run. To reiterate; the best advice is to have two cards " one exclusively for your balance transfer and one for your purchases.
Finally, before you fill in that tempting application form, do your sums first. Work out exactly how much you are going to be paying each month to clear the initial transfer amount without paying interest. Remember that these cards also incur other costs including balance transfer fees, possible late payment charges and insurance (which is often mandatory). By knowing your figures before you choose the right card you will be taking a much firmer control of your finances right from the start. This means you have a far better chance of surviving the current economic crisis and coming out the other side in a much stronger position financially.
Tempting 0% offers on credit cards have been noticeable by their absence this year as credit card companies tighten their belts in anticipation of another lean year. But they are out there, with some banks even joining in the frenzy to tempt wary high street customers into their branches with 'Sales' on financial services, including balance transfer credit cards. The smart consumer can take advantage of this desire to please by the credit card companies and snap up a bargain on balance transfers. Many credit card companies are now reducing their exposure in the marketplace by only accepting customers with very good credit histories. Any small blip on your record could stop your chances of taking advantage of the few 0% offers that are available, so a worthy New Years resolution might be to check your credit history records. If there are any discrepancies on your record (even something as insignificant as an incorrect postcode) they could affect your ability to gain credit. By checking that all your details are correct and up to date, you have a far better chance of taking advantage of the offers that are available.
If your credit history is all in order, there are still a few things to think about before choosing a balance transfer card. Firstly, a transfer fee is usually required to move an outstanding credit card balance onto a new card. This fee is normally around 3% of the total transferred, but some cards do have a minimum fee no matter how small the transferred amount. You will need to include this amount in your calculations of exactly how much transferring to another card will cost.
Not all 0% balance transfer credit cards offer interest free terms on purchases as well. This is where the golden rule of credit card balance transfers comes into force " never use the card for purchases as well. Keep it exclusively for balance transfers. The amount you pay each month will go to pay off the most recent transactions first, rather than your initial balance transfer. This means that you could end up running out of time on the 0% offer, with your monthly payments going to clear off recent purchases when they could be shrinking the size of your balance transfer instead. This could undermine the whole point of taking out a balance transfer card in the first place, as you may start paying interest before the debt is cleared.
Some cards offer a tempting combination of 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. In a direct reversal of the above scenario, with these cards once the 0% on purchases has run its course your payments go to the amount attracting the lowest interest rate first, namely your balance transfer. This is known as 'negative payment hierarchy' and results in the customer paying the full interest amount on purchases (usually a minimum of 18% on most cards) and costing more in the long run. To reiterate; the best advice is to have two cards " one exclusively for your balance transfer and one for your purchases.
Finally, before you fill in that tempting application form, do your sums first. Work out exactly how much you are going to be paying each month to clear the initial transfer amount without paying interest. Remember that these cards also incur other costs including balance transfer fees, possible late payment charges and insurance (which is often mandatory). By knowing your figures before you choose the right card you will be taking a much firmer control of your finances right from the start. This means you have a far better chance of surviving the current economic crisis and coming out the other side in a much stronger position financially.
About the Author:
Financial writer James Noon writes for various popular financial-based websites. He specialises in breaking down financial jargon for the regular consumer. You can find out more about credit card balance transfer here.
posted by Debt Consolidation Loan at
12:04 PM
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